Should I Buy Or Lease A Car Article
Auto Leasing Scams
Car-leasing has been lauded as a more attractive alternative to buying,
offering in the process the flexibility to drive a new car for less. The
reality, however, is that leasing is an option that is fraught with many
pitfalls for the average customer. Leasing regulation does not require as much
disclosure as buying a vehicle. This has given rise to many leasing scams that
trick the customer into believing they are into a good deal when, in effect, all
he is getting is a rough deal on the dealer’s terms.
Here we look at some of these common scams and how to avoid them
Artificially low interest rates:
Some dealers quote a lower interest rate when in reality it’s much higher. They
do this by either purposefully quoting the money factor as the interest rate or
calculating the loan without amortizing some closing fees, like the security
deposit, into the loan lease. Take the money factor for example: this is
typically expressed as a four decimal digit, something like 0.004. Some dealers
quote this as a 4% interest rate when in fact you need to multiply it by 24 to
get a rough idea of the interest rate on your loan. In this example, the
interest rate is a much higher 9.6% than the “quoted” rate of 4%. Make
sure you crunch the numbers and understand the formula they use to calculate
their interest rate. Look out for any fees not factored into the calculation. If
you are not satisfied, do not enter into the lease agreement.
Terminate your lease early for a low penalty
This is an all-time leasing scam. You ask your dealer how much you will pay if
you want to terminate your lease and he tells you: “You want to get out early?
Sure thing, you only pay an early termination fee of $300”. What he is quoting
is only the small administrative penalty of early termination, there is a much
stiffer penalty called early termination fee and this runs into thousands of
dollars. Do not confuse the early termination administrative penalty with
the termination fee. Read the small print carefully and know exactly how much
you will get charged should you terminate your lease before its scheduled end.
Pay for an extended warranty you don’t need
This is another shell game to inflate the dealer’s profit at your expense.
The dealer slides an extended-warranty into the deal whilst it’s already
factored into the monthly payments, or he tricks you into buying a 36-month
warranty on a 24-month lease. You do not have to pay extra money for a
warranty already built into your payments or for one that goes well beyond your
lease term. They might slip an extended warranty in. Don’t be fooled, the
warranty is already factored in.
No security deposit
Any dealer who advertises a $0 security deposit is not telling you the whole
story. A security deposit is always factored in the lease under the provision
for disposition fees.
